When Is A Partner Not A Partner?

A recent Employment Appeal Tribunal ("EAT") ruling has found that a solicitor who was held out as a partner and remunerated as a partner was nevertheless an employee of the solicitors' firm at which he worked. As such, he was entitled to bring an employment claim against the firm on leaving the practice. Although only an EAT finding this ruling is a timely reminder that, in law, the issue of whether someone is actually a partner or not is a matter of substance over form, and that answer is not always as predictable as one may think.

Why is this an issue?

One of the fundamental principles of partnerships is that all partners share joint and several liability for the wrongful acts or omissions of the partnership. To a would-be claimant pursuing a gripe against the firm, therefore, the ability to tap into the resources of the entire partnership (and its PI cover, if applicable) in respect of the errors of one individual is of significant benefit, especially if the errant partner has absconded or been found to have acted improperly. But (ignoring issues about whether someone may be liable as if they were a partner because of some holding out of partnership status) joint and several liability can only be conferred upon 'actual' partners – anyone not falling within that category escapes, and thereby shallows the 'pool' of resources into which our would-be claimant can dive. Establishing partnership status is therefore a contentious area.

How has this problem come about?

Over recent years, pressures on partnerships to continue progressing employees' careers against a climate of dwindling profits has led to the creation of many tiers of partnership, ranging from those that remain salaried through to those taking a fixed share of profits. This has led to much debate regarding the status of these new breeds of 'partner' in the eyes of the law. Various factors have been found to be influential in determining whether (and to what extent) the law should recognise these individuals as partners, such as:

Whether the individual is held out as a partner to clients; Whether the individual has signed up to a partnership deed, including agreeing terms to share profits and losses of the partnership; Whether the individual is remunerated through a share of the firm's profits; Whether the individual has committed their own resources to the partnership by way of capital; Whether the individual is involved in the general management of the firm; and Whether the...